Supply chain leaders likely got chills when they opened the Financial Times in early April to read: “The global economy has entered a “synchronised slowdown” which may be difficult to reverse in 2019, according to the latest update of a tracking index compiled by the Brookings Institution think-tank and the Financial Times.”
Between trade tensions, weak business and consumer sentiment, and other geopolitical uncertainties, the global economy has been slowing for months now. The FT reported that data from both first-world economies and developing ones show “fading momentum in global growth.”
For policymakers, that means it’s time to start thinking about how to stimulate the economy. For everyone participating in the economy, however, it’s time to think about how to weather this downturn.
What does the Economic Downturn mean for Shipping Industry?
The latest sign of the slowdown comes from the shipping industry: Freight rates for dry bulk and container ships, which move both raw materials and finished goods, have been falling for the better part of a year.
Reuters reports that the Baltic Dry Index, which measures transportation costs for raw materials like coal and iron ore, has fallen 47 percent since mid-2018. That was when the trade war between the U.S. and China was heating up, with the world’s two most powerful economies adding tariff after tariff to one another’s goods.
“The global economy and dry-bulk shipping market are showing us very real signs of distress,” said Jeffrey Landsberg, managing director of commodity consultancy Commodore Research, in the January story.
Dry bulk commodities are used in industrial sectors, like steel manufacturing and power generation. Growth in those sectors is a good indicator of growth in the rest of the economy. If consumers are doing well, then construction and manufacturing are doing well, which requires more raw materials. But if consumers aren’t spending money, manufacturers scale down production, needing fewer raw materials.
This applies across the supply chain. Vertically integrated companies are more likely to show growth in a strong economy but to take big losses in a weak one.
At the end of the supply chain, third-party shipping, a weak economy is characterized by a “freight recession.” That means there’s simply not enough freight to fill all the trucks, ships, and aircraft that want to carry it. If the economy is slowing, then the whole supply chain is slowing — which means a freight recession is likely on its way.
Freight recessions force third-party shipping carriers to compete for shippers’ business on two fronts: Lowering costs and expanding services. That should be good news for shippers. But a slowing economy affects shippers’ profits too. Trade barriers and weak business sentiment will make producing goods more expensive and logistically challenging. Weak consumer sentiment will make customers less likely to buy, which means shippers too will have to lower costs or expand offerings.
FreightWaves summed it up well in January: “After getting wrecked by runaway costs in 2018, shippers’ supply chain managers will live under a mandate to reduce their transportation budgets, optimize their networks, save money, while still outperforming their competitors on service, whether that means freight covered, visibility provided, or on-time rates.”
What Supply Chain Companies can do to be Proactive
Third-party carriers know global growth is slowing and a freight recession is coming. Those who haul raw materials in particular are posturing for new and more aggressive contracts, hoping to secure clients for the next few years as trade tensions continue.
Carriers taking the long view have realized that there’s only one way to survive in the long run: by investing in digitization and automation. Automated facilities are as or more productive than existing ones, and per-unit profits are much greater.
This goes for others along the supply chain, too. An economic slowdown is a good time to make strategic investments in technology. Software and hardware that support collaboration along the supply chain will make for better relationships between partners — relationships that are more likely to withstand the freight recession. Not only does easy collaboration make for better communication and transparency, but it can likely save all of your partners money.
How Reveel Can Help
Since 2006, Reveel has been dedicated to providing our clients with shipping intelligence so that they can make the smartest business decisions possible. Founded by former DHL sales executives, Reveel was created to level the playing field between shippers and the carriers they rely on. Over the past 13 years, our zero-risk services have saved our clients millions of dollars.
Our mission is simple: increase our clients’ profitability by empowering them with shipping intelligence and advocating for transparency within the industry. We lift the veil on the pricing that your carriers are offering to similar companies, giving you valuable industry and regional benchmarks.
We understand that as the economy slows, many companies will need to reduce the size of their shipping teams without sacrificing profits in those areas. Reveel can step in as a resource in place of an in-house shipping expert.
Our expert team of former FedEx, UPS, and DHL pricing analysts and account executives can review your current contract and offer localized insights. We have a track record of negotiating savings of 15 percent to 20 percent on contracts.
Next, we’ll help you collect every refund dollar you’re owed. Every year, billions of dollars in shipping refunds go unclaimed because so few companies have the time or expertise to inspect complex carrier invoices for errors. Our 45-point process makes sure you’re not leaving money on the table.
Finally, we believe the key to successfully managing your transportation spend is data. Our reporting and analytics services offer real-time insights that enable our clients to manage global trends, maximize efficiencies, and identify valuable opportunities for savings.
The best part? Our pricing is based on how much money you save. If you don’t reduce your shipping spend, you don’t owe us anything.
Let Reveel support you through the global economic slowdown and its freight recession. Reach out today for a free invoice audit.